TSX rallies on U.S. budget optimism

TORONTO (Reuters) - Canada's main stock index jumped more than 1 percent on Monday, led by material and energy stocks as commodity prices advanced on hopes that a U.S. budget crisis will be averted.

Over the weekend, leading Democratic and Republican lawmakers expressed confidence that they could reach a deal to avert the "fiscal cliff", a mix of tax increases and spending cuts starting early in the new year unless there is a deal on Capitol Hill.

"We started to see some headlines on Friday about resolving the fiscal cliff problems that we're facing, and today we're getting some follow-through on that front," said Levente Mady, senior portfolio manager at PI Financial Corp in Vancouver.

"That's driving not just equities, but commodities and currencies and the rest of the world really in general," he said, noting that the U.S. Thanksgiving holiday week has historically trended higher.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE ended up 162.68 points, or 1.37 percent, at 12,040.40. All the 10 main sectors on the index were up.